Flat Tax vs. Fair Tax

Republican Presidential candidate and retired neurosurgeon Dr. Ben Carson is proposing a 14.9% flat income tax and throwing out the current tax code. The primary arguments made for going to a flat tax is simple: there will be no loopholes for anyone to jump through and take advantage of, no one will be taxed twice on capital gains, interest and dividends, and most citizens will have some skin in the game. That’s fine except there are two major problems:

People are still being taxed on how much they make. Anyone who gets a paycheck is getting taxed based on doing WORK! Why should the government benefit from my labor? In addition, those who refuse to work and live off the system aren’t contributing either. People making money under the table and on the underground economy aren’t participating either. They aren’t reporting to the IRS, which leads to…

The IRS still exists. In order for the government to collect the money, employers still need to take money out of everyone’s paycheck. The tax cheats still need to be chased down. People will still need to fill out (simplified) forms every year. We’re still paying for a big government entity to take our money.

This isn’t to say I’m against all taxes–I’m not. I do agree that the system we use to collect taxes is fundamentally flawed and morally broken. Or maybe that should be morally flawed and fundamentally broken. However we want to call it, these two problems have to be resolved to have any permanent form of tax reform. A revolutionary idea has come up called the FairTax. A more detailed summary can be found here, but here’s the gist of the plan.

All payroll taxes including income, Medicare, and Social Security along with capital gains, gift, estate, alternative minimum, and self-employment taxes are abolished and are placed with a single, simple, visible sales tax, now proposed at 23% inclusive in the display price. No sticker shock surprises. This comes out to be a roughly 30% sales tax on the original value. This would only apply to used items, not used ones.

Every qualified citizen, regardless of income, will receive a monthly prebate check based on the monthly consumption allowance as determined by the Department of Health and Human Services for a family at the poverty level, dependent on family size, multiplied by the FairTax rate. Essentially, citizens living at or below the poverty line will be receiving extra money from the government to use for what they want. Everyone gets a refund on the tax for necessities.

This plan will completely radicalize how we think about taxes. We’ll only pay taxes on what we buy. If we buy something expensive, it’ll be accompanied by a larger tax bill; if we don’t buy anything, we won’t pay a tax on it. Who’s better at deciding how we spend our money but us? Fewer people can cheat the system because more work would be required by multiple parties to defraud it which leads to an increased likelihood of tax cheats getting caught. No one is double- or triple-taxed. As the plan is laid out now, no government spending is touched as FairTax is affecting the collection of taxes. Since all taxes are collected at the registered and are forwarded to the government, there’s no need for an IRS. The result of this plan however will lead to increased revenue to the government because more people are paying in via the streams which make the most money and less time and money will be spent trying to collect money.

In order to really make this plan effective, there needs to be some MAJOR changes on how the federal government spends money. Since everyone will be getting back all the money that would have been taken away and used for Medicare and Social Security later in their lives, is there a reason for those programs to exist? Keep the disability payments, but get rid of the rest. The burden of retirement plan shifts from the government to the person. For people who have already paid into these systems, they should be entitled to a lump sum for every penny they have paid into these systems plus interest. Plus, we don’t have to worry about the federal government stealing from these systems anymore. In addition, the federal government needs to live within its means like every person who is subjected to the government. We need to go line by line to remove waste, overspending, unconstitutional laws, and government overreach.

Maybe I am being a bit too radical. Blowing up how the government collects AND spends money? We can’t “fundamentally transform” that, right? Then again, isn’t a $18 trillion debt with an inefficient government enough?